Borrowers flock to fixed-rate mortgages amid uncertainty
The number of borrowers taking out fixed-rate loans in June 2011 has increased to 3,301, more than double that of June 2010, according to ABS data.
June was also the highest month-on-month increase since December 2010 when borrowers were spooked by the large variable rate increases of November 2010. In May 2011, borrowers took out 3,148 fixed rates loans.
The biggest take up of fixed rate loans has occurred in WA (up 140%) and the ACT (up 139%) with all other states recording big increases.
The increase in fixed-rate demand comes as more lenders cut their fixed rates.
From August 12, the Commonwealth Bank’s reduced fixed rates kick in, including its three-year fixed rate dropping by 50 basis points to a market-leading 6.59%.
The proportion of fixed-rate home loan applications submitted via comparison website RateCity has increased significantly in recent months, making up 23% of applications in July compared to 13% January.
RateCity CEO Damian Smith says lenders have started competing aggressively in the fixed home loan market.
“Most lenders have been dropping their fixed home loan rates steadily this year but we haven’t seen this level of fixed rate movement since the global financial crisis.
“We saw 17 lenders that have dropped some of their residential fixed home loan rates this week alone; the average three-year fixed rate has hit a new low of 7.20% from 7.42% in December 2010.
Smith says that while fixed interest rate movements can be an indicator of the direction of the interest rate cycle, there are other explanations for the movement in rates.
“Fixed rate movements are generally good predictors of what lenders think will happen to interest rates, so there’s obviously some possibility that variable rates might go down given the global turmoil.
“But in addition to this, lenders are using attractive fixed rates to kick start a very slow home lending market.
RateCity’s top three-year fixed and variable rates, as at August 11, 2011
Variable home loans | Three-year fixed home loans |
Better Option Home Loans, Advantage Plus Variable | ING Direct, Residential Fixed 3 years - 6.69% |
Pacific Mortgage Group, Variable - 6.67% | MyRate, Residential Fixed 3 years - 6.70% |
eMoney, Full Doc Variable Pro Pack | Commonwealth Bank, Residential Fixed 3 years - 6.74% |
loans.com.au, Dream Loan Express - 6.69% | Citibank, Standard Fixed 3 years - 6.79% |
Mortgageport Management, Essential - 6.69% | RAMS Home Loans, Standard 3 years fixed – 6.79% |
Note: Non-bonded institutions only, excludes introductory home loans and packages
Source: RateCity.com.au